MoffettNathanson Partner Lisa Ellis joins Yahoo Finance Live to discuss takeaways from the annual Berkshire Hathaway sharesholders' meeting, CEO Warren Buffett and Vice-Chair Charles Munger's opinions on crypto, and China's ban on bitcoin.
- Welcome back, everyone. During the first Berkshire Hathaway annual shareholders meeting held in-person since COVID, Warren Buffett and Charlie Munger didn't hold back on their disdain for Bitcoin. For more on why, I'm joined by Lisa Ellis, partner at MoffettNathanson. Good to have you, Lisa. Obviously, no surprise. They've made no secret about this. What would you compare their disdain to Bitcoin to?
LISA ELLIS: Oh it's very similar, at least they're consistent. They've long lambasted gold for many of the same reasons. They view gold and Bitcoin as what they refer to as unproductive assets. Assets that aren't like a farm or a factory that make things, but ones that are sort of intrinsically more speculative. That's fine, valid, like that's a style choice. There are other investors that believe that some of these more we call commodity assets hold long term value because they're tied to big macro factors, like how gold is tied to, elevated times of geopolitical risk, et cetera, or elevated periods of inflation. It's just a different investment style.
That's the point they're making. They're saying Bitcoin, like as the currency Bitcoin is an unproductive asset and so they don't invest in unproductive assets.
- And he was very specific. He said even for all the Bitcoin in the world for $25, he wouldn't take it. I'm not 100% sure I believe him but perhaps but he did "whether it goes up or down in the next year or five or 10 years, I don't know. But the one thing I'm pretty sure of is that it doesn't multiply, it doesn't produce anything. It's got a magic to it and people have attached magic to lots of things."
Now keep in mind he was also comparing that to farmland or rental properties, things that obviously you can make money from. But is that a fair comparison, do you think?
LISA ELLIS: Yeah, I don't know. I mean one of the complicating aspects when it comes to Bitcoin is that there are different ways to view Bitcoin, and the word Bitcoin actually means a few different things. It refers to the currency, the unit of value within the Bitcoin system. But it also refers to the overall like capital B Bitcoin payment system. And what's complicated is that Bitcoins are used to power the whole system. They're like gas, or oil, or a tollbooth. There's sort of transaction costs associated.
So if you believe that the Bitcoin system will be used for something like use cases, like for example, for a method of payment in countries that are autocratic or have unstable currencies, for example, you can do the math on like, OK, what are those use cases? How many transactions? How much investment in the infrastructure is required to power those transactions, much like a payment network like Visa or Mastercard, and therefore what am I willing to pay for that juice, like that electricity that powers it, which is also a bit of what Bitcoin is. And that's the math actually a lot of people do when they're trying to set a target price for Bitcoin.
So they're kind of mixing. That's a little bit of the complicated thing when you're looking at this space is like there are different ways to view the value, so to speak, of Bitcoin. It's arguably not fully just speculative.
- And as you mentioned, it could be viewed as a currency, it could be used as an asset, or as you mentioned, the gas that this all runs on. But we did see Charlie Munger saying that he avoids things that are stupid, evil, and make him look bad, and said Bitcoin does all three. Now regarding the stupidity part. He actually says it's very likely that Bitcoin will go to zero, but how likely is that? What would need to happen for that to be the case you think?
LISA ELLIS: You have to-- I mean for Bitcoin to go to zero, there are I guess, there's a few. One, you'd probably have to see countries widely outlawing it, which is the opposite of the regulatory direction we've seen. Generally speaking, governments have sort of embraced Bitcoin and other digital assets. There's also I guess this tail scenario where there's an argument that if the identity of Satoshi Nakamoto was discovered definitively, that perhaps the integrity of the system, which is really built on its anonymity, would crumble and people would no longer sort of trust the anonymity of Bitcoin, the trustless aspect of the system. And that's kind of a tail risk I suppose that's out there. But it's another scenario where it could potentially go to zero, but you know that's the case of many things that are riskier assets that you invest in that there's always some distribution that may end up with the company going bankrupt or going to zero. It's not dissimilar from that.
- And that's a fair point as well. I do want to mention China, because we did see Charlie Munger did mention it saying that by us continuing with Bitcoin, he's saying it makes us look foolish compared to the Communist leader in China. He said he was smart enough to ban Bitcoin there. And with all of our presumed advantages in civilization, we are a lot dumber than the Communist leader in China. But obviously the US still exploring these risks, exploring the gray area when it comes to risks and opportunities. And he did specifically mentioned Bitcoin are not all cryptos. So is the US in a foolish position when it comes to this?
LISA ELLIS: I don't think so. I mean the US is also being quite progressive in supporting stablecoins, a different flavor of coin besides Bitcoin which are tied to the dollar, the US dollar. They're typically US dollar backed, they could also be Euro backed or something Fiat backed, stablecoins which is a way actually of permeating the dollar, the US dollar, as the global reserve currency in a much more modern way than how it's done today, leveraging digital asset technology. That is very progressive actually. So in many ways in embracing Bitcoin as kind of the granddaddy of crypto, but then also embracing a wide array of coins associated with this technology, stablecoins, NFTs, Ethereum and everything being built off of Ethereum, the US is particularly around supporting stablecoins actually being a bit progressive in making sure that they maintain the US dollar as the global reserve currency by modernizing essentially the underlying technology that it's run on.
I thought it was interesting I mean to your point that they keep only commenting on Bitcoin, and they're not commenting on some of these other tokens. It actually leads me to believe that they may see more utility in some of the other ones like Ethereum, for example, which is more like an operating system. It's a bit like buying into Microsoft Azure, like an open source version of Microsoft Azure has nothing to do with currency really. So I'd love to hear their perspective, frankly, on some of those other types of coins.
- We'll certainly watch this space. It was conspicuously left out that it was just Bitcoin and not the others. Lisa Ellis there. Thank you so much. Partner at MoffettNathanson. Thank you so much.